How to Calculate the Intrinsic Value of a Stock like Benjamin Graham! (Step by Step)

[@Dividendology]

*Important Update - I might a slight error on the margin of safety portion of this video. In order to see the correct way to apply a margin of safety, please watch this video: How to Apply a Margin of Safety like Benjamin Graham! (Margin of Safety Explained + Example) kzbin.info/www/bejne/eKrWeItpj8x_fLc

[@aneel139]

as you said, in revised scenario as well, acceptable buy price is less than intrinsic value but how cone its sell option?? or the formula should be current price < acceptable buy price???

[@kk28032]

@@aneel139 correct formula at 15:38 , look at the formula box....

[@dougb8207]

Oh thanks ... been spinning my wheels for half an hour trying to unwind what my discrepancy was! I was going to comment, but you've already found the problem.

[@SonnyBB]

the growth rate express in percentage should be computed as percentage, so the intrinsic value is only around 75

[@metalsir7060]

This video is amazing! nice job! do you know if there is a way to manually calculate your own growth rate pulling the historical data into the sheet? many tks! PS: I made a concatenate function that actually gives the complete yahoofinance link straight into the analysis tab.. easy but effective since you click on the cell and the page magically opens in the right place. scroll down, boom, done.

[@MrNintoku]

11:03 I think this is an error since no matter what you have as your Intrinsic and Acceptable buy price as long as the margin of safety is below 100 it will always say Buy. I am assuming here that the comparison should be between current price and acceptable buy price. If Current Price

[@AlejandroDiaz-ll5eq]

this is what i was thinking too. at 13:22 the formula changes for "acceptable buy price" as well but i'm not sure if i'm missing something

[@firsargentum5920]

Yeah, you're right. He should be comparing the estimated intrinsic value to the actual current share price in F26. Also, in reality, you probably wouldn't wait to sell until the stock goes 65% above its intrinsic value. If you sell if it goes say 20% above intrinsic value then the condition should be something like: IF (F26 < F29, “Buy”, IF (F26>(F23*1.2), “Sell”)

[@toddforney5198]

I believe that's correct as well. I also noted that the "Difference" calculation is not used in the buy/sell determination. Perhaps it's just an interesting statistic.

[@brandyharding7692]

@@firsargentum5920 this is to decide rather to buy or not. Once you buy you shouldn’t be looking to sell if you have done your homework for that company.

[@firsargentum5920]

@@brandyharding7692 You can also use it as a guide to sell if you think the rationale for buying not longer holds, one of which could be that the stock has run up too much and has become overvalued. In any case, the substantive point is that the formula he gave for deciding on the Buy decision is wrong - I'm sure the OP understands the math and probably just effectively made a "typo" :)

[@dudemanbrotime-financetech1338]

Finally someone whos not speculating/gambling

[@jle92708]

Investing is speculating to an extent. The bet is to assume the market will realize the value.

[@lucasasselmeier7825]

@@jle92708 speculation Is a term used in investing to distinguish a value approach based on the analysis of a businesses financials. Speculation is reviewing the stock charge and betting that it will go I do agree that investing requires speculation, though taking a value approach and deeply analyzing a business is using realized data to make more accurate predictions. There are no guarantees of course, but there ways to invest that isn’t just placing a bet because you feel like you can make money

[@sheldor73]

@@jle92708 🤣🤣🤣🤣🤣

[@maalikserebryakov]

@@jle92708LOL

[@maalikserebryakov]

@@sheldor73 Whenever I want a good laugh I turn to the stock market community, there is always a large group of court jesters to lighten the mood :)

[@larryyang976]

Great content! Based on this same formula, apple intrinsic value is only $142 as of 02.18.2023. Apparently the growth rate cannot catch up to the corporate bond rate and the eps stays same. Now I understand why these once hot stocks are not hot anymore during inflation. Great formula. Thanks for bringing this to me!

[@swapnilhirave3354]

Great content. Acceptable buy price must be greater than Current Price for decision on "Buy", as 'Acc. (10:20) Buy price' is factored from intrinsic value itself. Need to correct this in model 1.

[@sridevipanyam5759]

AT 10:55 the buy/sell recommendation logic should be if the price of the share is less than acceptable buy price.

[@kegomania]

Warren Buffet doesn't use this. He uses a version of this that uses free cash flow. He doesn't like to use earnings because EPS can be manipulated by management.

[@FakeSparrow-lu5ih]

What is the formula or what is the name of it, pls let me know, thanks

[@kegomania]

@FakeSparrow-lu5ih unfortunately it's a well kept secret by anyone who has the formula. They're unique to the individual depending on the formula. I suggest really diving in and learning as much as you can about the topic. But on our levels, his quote "buy good companies and do nothing" works well.

[@kegomania]

@@FakeSparrow-lu5ih research "discounted free cash flow (DCF)"

[@FakeSparrow-lu5ih]

​@@kegomania thanks

[@canuk688]

probably worth stress testing that growth rate, tapering everything you can is worth seeing what the model implies as value

[@thefantorangster2491]

Grahams gormula is fairly accurate, it’s just that 17% growth rate is a redicilous prediction.

[@davidoneill4859]

Very helpful, but the Buy/Sell formula should compare acceptable buy price to current price

[@theBetterCommunicator]

Agree with your point

[@sanziocaroli4455]

Just my 2 cents, if growth rate is 17.93%, you have to put 0.1793 in the formula, not 17.93, in other words, if a number is expressed in percent, you have to divide percent.

[@krishnaramachandran7722]

No. 8.5 is % as are 4.4 and Y. So it does not matter because both numerator and denominator are inflated by a factor of 100

[@zaiho1336]

This is a great video; thank you. However, I think there's an error calculating the Acceptable Buy Price using the Margin of Safety (MoS). If a 65% MoS for AAPL is 252.26 (388.09 x 65%), which means we want more protection; then the Acceptable Buy Price = Intrinsic Value - MoS of 65% = 135.83 (388.09 - 252.26 = 135.83). Let's say we would accept less MoS for AAPL, which means we are more confident about the company and accepting less protection. A 35% MoS is 135.83 (388.09 x 35%). So, the Acceptable Buy Price would be 252.26 (388.09 - 135.83 = 252.26). Therefore, a 35% MoS (low MoS) would result in a low Acceptable Buy Price (252.26), and a 65% MoS (high MoS) would result in a much, much lower Acceptable Buy Price (135.83). In contrast, the video shows that a 65% MoS has an Acceptable Buy Price of 252.26.

[@im_gauravg]

Absolutely agree. I think too that Buy Price = Intrinsic Value - (Margin of Safety * Intrinsic Value)

[@jennjenn1273]

Yes, the formula is off.

[@Chino99999]

You are right.

[@isasunasra9910]

Absolutely agree, thanks for pointing out

[@vladpruna95]

Thank you! I was wondering if I've made a mistake because it seemed off

[@marcusabdo7316]

I've been searching for this spreadsheet for so long I gave up about a year ago. Somehow this came up in my feed. It's perfect! Thank you!

[@Dividendology]

Awesome! I’m glad you found it!

[@daktrdre]

15:43 =IF(I30

[@jordanjacobson1119]

Thank you, thought I was going mad

[@olieolieolieolie1249]

The „intrinsic“ value in Graham‘s book refers to the value of the company’s assets. That is: take all the assets (not including any non-tangibles) and add them up (take depreciation into account). deduct all liabilities and divide the total of both by the shares. this gives you the value of a share should the company have to be liquidated. remember that graham lived 1929. then include a 20% safety margin and then you have the value to compare the current price to. Obviously this does not carry as much weight anymore as tech companies have little assets compared to there intellectual properties. But it is a conservative way of valuation for production companies with little intellectual properties.

[@SonnyBB]

the growth rate express in percentage should be computed as percentage, so the intrinsic value is only around 75

[@obijuan3004]

Great Job! Simple explanations, easy to understand. Now I just have to evaluate 4000 stocks…😊

[@vishwajeetpatel3872]

you can just automate this. as per the formula, you can acutally lookup the EPS and other numbers. Download the Script names you want to analyze, and create a dropdown of the scipts. so everytime you select the script, it will give the IV. should not take more than an hour to create this for all 4000 stocks.

[@zozany120]

@@vishwajeetpatel3872 how do i do this? is there a video explaining the proces?

[@BenzinioB]

The best explanation of Intrinsic Value of a Stock!

[@Dividendology]

Thank you!

[@husseinalaaref4910]

In the IF statement, the first parameter should be (current price < acceptable buy price) not (acceptable buy price < intrinsic value). Thank you.

[@Bullishbtc007]

Hi great video, just Quick question, why the growth rate (2g) in the formula not in the percentage ( 17.93%). Thanks

[@keith7411]

It's funny that the entire valuation is based on "expected growth rate over 5 years" which is forecast by a group of investors. My concern is that there is a massive reliance on other people's idea on the shares future value. Would have thought that this reliance defeats the entire point of the valuation. Can anyone confirm how this 5 year growth rate is calculated by the brains trust?

[@esechromechrom4647]

This changes completely the valuation. I think it should be in %.

[@AnaCalderonTiburcio]

Hello! if I want to calculate a stock bases in Mexico the Average yield aaa bond changes and what else? Besides the obvious. And the value should be in mexican pesos or us dollars?

[@premiumchoiceuniversalcare6445]

If the gwoth rate is negative. How do you calculate?

[@davidroussell5118]

Thank you for this. I've wanted to find a IV calculator for Graham for a while. I now officially have three different methods for calculations!🤣 1. Multiple of earnings 2. Discounted Cash Flow and now 3. Grahams. However, since I follow so much of Graham's teachings I think I'll explore this model.

[@Dividendology]

I’m glad this model helps! Don’t forget about the Dividend discount model as well!

[@philochristos]

When you use these different methods of calculating IV, do they give close to the same results, or are there big differences between them? If there are big differences between them, which method do you think has turned out to be more accurate?

[@sunchaserw1477]

Listening to what you teach here is way better and more productive than sitting in a finance class for the whole year. Magnificent!

[@Dividendology]

Thank you so much!!

[@reybigcena]

You are a legend. Probably the most useful video I have seen in the last 5 years.

[@Dividendology]

thank you!!

[@travelledfar]

For UK users, prefix the ticker with LON: and divide current price by 100 (p)

[@azeton128]

This formula is available to literally everybody. You can be more than sure it won’t be working for retail. Not a chance.

[@davidvose2475]

You need to apply some discipline on the units of the parameters in the model. For example, g is a %. It's better to plug in 0.1793 in Excel and format as %. A reality check - is a stock really worth $388 when it generates $5.11 per year?

[@cherokeejack7757]

I should have learned this a long time ago, but I don’t recall call this in my 1969 Business management class. Good work!

[@vinibusisanga1754]

What relation does bond yield and stock price possess ?

[@Danseleicus]

How do you factor in stock splits? Assuming there hasn’t been any stock splits, wouldn’t the results be quite different?

[@nicholasmichael3823]

Thank you for the video! This helps me a lot! I have a question. If I am doing the calculations with a company that has a negative EPS, and I, therefore, get a negative intrinsic value, what should I do? This seems to throw off my results

[@leonuno7716]

yeah in the same situation

[@TheEihklusivKrossi]

Question: Y value is easy to track for US Markets. How do we find Y value for non-US markets? TIA

[@fluffyscruffy]

If the Growth Rate is a percentage, shouldnt it be listed in decimals? i.e. 0.1793?

[@scarabonyx3565]

The video is misleading, but there are some who will believe it.

[@antilogism]

That threw me too. I need to read the book I guess. Another factor in the text?

[@d.kleiser9514]

Thanks for the fine video. If 4.4% was used by B. Graham as the average AAA corporate bond rate, how old is that, and should it be updated and if so how? Thanks...

[@brandyharding7692]

I use 1.5 growth and have a table based on the average of the top 10 stocks in that industry divided by 2.

[@mikatu]

Thanks a lot. It was very well explained. I also find that the original formula is too agressive. I just think you shouldn't say buy vs sell, because the goal is not being selling stock simply because the market is not there. You should keep your stock if you believe in it. You should put buy vs not buy. To decide if you want to sell you should create a different model, where you incorporate your "pain-level".

[@Dividendology]

Great thoughts. I agree!

[@abdulrahmanpasha8436]

Hi that’s was very helpful just one confusion I guess you have done a minor mistake in IF formula.

[@andychavez]

In your formula for checking if the stock is buy or sell in 10:43, the answer will always be BUY because always will F29 be less than F23 because F29 is a product of percentage(Margin of error) to the F23. Is this formula really correct?

[@Dividendology]

See the pinned comment! Thanks!

[@ozeromd1882]

Video is well explained. But you could have added that Graham did actually implement two warnings in a footnote that Growth Rates are unpredictable and therefore the formula is basically not very meaningful at all.

[@EgressFromStress]

Good evening. I have a question...is the 8.5 or 4.4, and the growth rate percentages? I noticed a lot of growth rates are in percentages. For instance one growth estimate was 101.42 % So do I have to change that to 1.0142? Also, your examples, are 8.5 percentages? If they are do I need to change them to .085 or .044? i am really excited about this formula but just am confirming...especially with the growth estimate of 101.42...does that need to be changed or not. Thanks so much.

[@sachseo.5530]

Had the same observation. Multiplier i think should be 0.1793 instead of 17.93?.

[@tomstevelt9641]

How do you suggest dealing with negative EPS or negative Growth? For example, currently BA and DOW.

[@tbone50515]

When the intrinsic value is less than the current stock price does the formula still work?

[@gregcullen8744]

Are you sure at 10:50 in the video the Buy/Sell comparison is being done correctly? Should you be comparing the current price to the Acceptable Buy Price?

[@Dividendology]

see pinned comment

[@shak_Fu]

Hello @Dividendology. Could you please reveiw your formula here for buy/sell versus your video posted on margin of safety buy/sell formula and clarify. You use current

[@Dividendology]

See pinned comment

[@madhukareunny7614]

with the current corporate AAA BOND yeild of 4.6 does your forumula explained still work?

[@djchaynes]

Thats true.. Because every stock is overvalued

[@jdrdesignconstructioninc.4764]

What happens if you took the average of both models and used those numbers?

[@anxheloripa449]

I think there is a mistake or im confused lol. Your acceptable buy price is .65*Intrinsic value. Which means that the buy price is always lower than intrinsic. So your last sell will always say "BUY". Shouldnt you compare to current price?

[@lcmlcm2460]

Best explanation I’ve seen on KZbin so far. I probably will have to watch this a few times but I appreciate it.

[@Dividendology]

Thank you!

[@siddharthpandey8516]

Amazing playlist! Has exactly what I am looking for, thank you!

[@sethcharles3811]

Your lessons help me improve my trading strategy. Thank you for your expertise and experience!

[@PersonalFinancesExplained]

Thanks for the formula it's very helpful, but how do you modify the buy sell rating to check that the acceptable buy price is above the current price?

[@souravkumar1051]

How frequently do you have to update the data this formula to determine whether it is acceptable to buy or sell? Weekly? Monthly? Daily?

[@tommybahamas40]

Very good video to understand the Intrinsic value of a stock and other important points to keep in mind before buy/ sell of stocks

[@RepairApp]

This is really well explained. Have you created one where you compare an individual stock intrinsic value to just buying an 8% ETF rather than bonds. They weren't around in Graham's time, otherwise I'd think he'd use this higher earning option to compare.

[@jmfishing4934]

For some reason, my IF function is not working appropriately and I have tried several times with both of your examples. Any recommendations?

[@Apeiron242]

I wish this video explained what these terms mean and why they're relevant. Do you have any back testing data on these models?

[@thuy-tienle860]

Thank you for the instructional video. Very helpful. Is the growth rate coming from EPS, P/E or something else?

[@jaiminsanghavi3575]

Academic formula for growth rate is retention ration * ROE ... Retention Ration is 1 - Dividend Yield

[@blue_phenix-28]

Why is P/E no growth a constant, Shouldn't it be different for different stocks?

[@kurtlcas]

What if we use fcf per share instead of eps?

[@narasimhamurty8553]

Just wondering.. In the Buy/Sell recommendation...should we compare Acceptable buy price with Current price ? in the video suggested at 10:57min.. its compared Acceptable buy price with Intrinisc value..

[@narasimhamurty8553]

it make sense to compare Acceptable Buy price comparison with Current price.. other wise there is no role for current price in decision making

[@Dividendology]

see the description! :)

[@Irishprice1]

Quick question for anyone with more grey matter upstairs than myself: ------------ They Buy/Sell formula seems to only look at acceptable buy price vs. intrinsic value. What if the current price is higher than acceptable buy price, but still lower than intrinsic value. Is there a way to use a formula (IFS for example) to list buy if: - Acceptable buy price is below intrinsic value AND - current price is belowe acceptable buy price ???

[@alexandercharalambous6598]

There is an error on the formula at the bottom of the sheet. The current formula SHOULD be comparing the acceptable buy price to the current price. Currently it compares Intrinsic and so will ALWAYS show "BUY". Also, this formula only says buy or sell. There is no HOLD option and you wouldn't necessarily want to sell as soon as the price reaches value. You might want to sell when it's 20% over value for example. I have made a new formula based off one seen in comments to show a buy, hold and sell price ranges. =IF(F26F23*1.2),"SELL","HOLD")) Conditional formatting will then allow you to highlight the cell in colours for ease on your eyes after that formula has made them bleed.

[@jumboegg5845]

3 years later, current price AAPL is $220.91 USD

[@crackfloor]

How often should u update it

[@Sandeesh_Srikantam]

Do we have any hint about when this intrinsic value price would be reached ?

[@schzx14]

You did a good job in your video. But I’m from the future. November, 2023 to be exact. And for Verizon, selling short will make you rich. For Apple, buy it and hold until my time. Glad I was able to help you past humans. These lessons remind me of what Lou Rukeyser would say after getting wildly differing estimates of future markets from his guests. Paraphrasing: “One thing is certain, some of them will be wrong”.

[@NoPickles.4Me]

(2x g(17%) growth) is a percentage shouldn't it be 2x .17 instead of 2x 17? Further, stocks trade at multiples so then you would need to apply a multiple to see the actual value now at 26 times earnings?

[@spaideman7850]

5:40 if 2g = 2, then where is 17.93 growth rate data gonna be used in this formula?

[@motinbar5]

Need to calculate the value of the company's assets and cash versus its value in current shares

[@hazim1545]

Does anyone knows the growth rate that he put, what growth is it? Is it net profit, revenue, or share price?

[@Dividendology]

earnings

[@hazim1545]

@@Dividendology what earning? Net profit you mean?

[@blubb2514]

10:46 you make the buy or sell if statement: if the acceptable buy price is less than the intrinsic value buy else sell. But you calculated the acceptable buy price by multiplying 0.65 with the intrinsic value. Shouldn't it be: If current price is equal or smaller than acceptable buy price buy else sell??? I was very confused here. The way you put the buy/sell together it will always want to buy.

[@Dividendology]

Error. see the description! :)

[@garyrooke9582]

how do you find out whether a company is AAA, AA or A rated and what are the relevant numbers related to tthem ?

[@tswop9430]

For revised formula, I think the comparison is incorrect. On this one it states to compare Acceptable Price to Current price. Original formula compared acceptable buy price to Intrinsic Value. Both equations should yield a BUY

[@jboy1757]

Can this be used on ETFs? If so, what would be the EPS equivalent?

[@milwaukeetweed4843]

Shouldn't the buy sell "if" function be based on the margin of safety rather than intrinsic value?

[@joseantoniocanorosas]

GREAT VIDEO! You earned a new subscriber, THANK YOU!! 👍

[@adamrowley2895]

Ok, how do you include the dividend of the stock

[@lio298]

Great Job!!!! Thank you and very good luck with your channel. Keep up with sharing good content

[@JinNani224]

What do you do when a stonk has negative EPS?

[@JasonHartmanEmpoweredInvestor]

How and why did you pick 65% as a margin of safety?

[@Dividendology]

It’s what Graham recommends!

[@krishnaramachandran7722]

Prof Damodaran aka Dean of valuation has a different method. The safety margin appears to be a random number and defeats the whole purpose of calculating the intrinsic value.

[@r.t.santor3840]

Very helpful thank you. Where does the revised formula come from though?

[@markjsheehan9952]

hey great video! Is there any websites/software you recommend out there that calculates the intrinsic value of a stock?

[@Dividendology]

Yep! TickerData.com has automated sheets for this!

[@39lloydb]

I don't see any calculation using the current price? So if the current price is higher than the intrinsic value and the acceptable price, you still should buy based on the acceptable price being lower than the intrinsic value?

[@willpope302]

Initially, the formula that you used for the Buy/Sell price stated to buy the stock if it's acceptable buy price was less than the intrinsic value. But, in your revised formula, the acceptable buy price remained less than the stock's intrinsic value. Therefore, it appears that you must have changed the variable from the IF() statement in your revised formula from being the "intrinsic value" to being the "current price". I would greatly appreciate some clarification; but regardless, thank you for the video!

[@Dividendology]

See pinned comment

[@willpope302]

@@Dividendology My apologies, I just saw the pinned comment. Regardless, It wasn’t a big deal at all and I fixed it immediately after noticing the mistake. Thanks again for the video & information, I’ve already incorporated it into my interactive dashboard!

[@Dividendology]

Great!

[@MurthyMurthy-wb7nx]

Your investment is equal to prise * time* rate of interest devideded by hundred is equal to your interest out put ,, devidents only account pay only

[@Gledii]

thanks for sharing. look, what bout the growth rate? you took the 5 years as example, but there is not time function on the equation. i believe it should be relevant if you take 3 , 5 or 10 right? or im missing something.? thanks

[@antilogism]

The Yahoo data is per annum, like the bond rate. What was odd was out-of-the-blue multiplying it to get an 18x growth rate?

[@BobThompson2012]

shouldnt the last formula to buy or sell compare the current prices to the acceptable buy price? or am i missing something?

[@Dividendology]

see pinned comment

[@xViSiOniX]

11:33 regarding that intrinisc value, maybe one should adjust it to stock splits, as APPL was valued at 400 tbefore the last 1:4 stock split, which would mean that the stock is far ivervalued

[@Baloney93]

Ofc you have to update the EPS then...

[@isyaboybigz6098]

Thanks for the explanation so I'm guessing the second formula on the right is less aggressive and more conservative / safe entry ?

[@Dividendology]

That is correct.

[@bluesunproductions9079]

This is good, but the intrinsic value is only part of the decision. It really is only used to determine the buy price by buffet There are several other factors he talked about when making a determination on whether to buy a stock or not. I would also be careful about using future growth projections. That number can distort the IV greatly.

[@kquehdbfkswu23]

I did the same formula you did for the revised valuation for the buy/sell, Ended up with the same exact calculation as you did but why is it still saying on my end a buy not a sell? 😅

[@Dividendology]

See pinned comment

[@andrewthacker114]

Interesting calculations, thanks for sharing

[@MomentumMindset-p3s]

What if the EPS is negative?

[@MortezaNurcheshmeh]

great video! just the Buy/Sell part did not make sense. at 10:44, you mentioned if the acceptable price is lower than the intrinsic value (which always will be the case after applying the safety margin) then buy. Guess it should be if the acceptable price is higher than the current price then you should buy.

[@Dividendology]

see pinned comment

[@ashleyornellas1198]

So if I project yields going up on AAA bonds then I have to adjust accordingly

[@HarrisRyan-oy8eo]

Pls who is this coach that guides you? I’m in dire need of one

[@Pomelu]

does the formula work with negative growth rates ?

[@samyy974]

can you use the forward EPS instead because thats based on past quarters

[@TheSkg2011]

The video is great and I thank you for your hard work. However, the formula for to Buy/Sell condition is a bit confusing; an acceptable buy price should compare with the current price column I believe. I have watched this video several times. Let me know what you think.

[@NeuroCurieux]

I think you are correct, while copying the formulas on my own spreadsheet, based on the formulas the acceptable buy price should always be less than intrinsic value, hence always a buy What we want to know is: Is the CURRENT price an acceptable price to buy